The answer is when it’s charity advertising, at least in the opinion of HMRC.
Most people would regard promotions on social media and the like as “advertising”. This is how many charities and their suppliers view such activity however for VAT purposes “advertising” has a specific meaning.
HMRC’s published guidance has not yet caught up with the world of online advertising. In 2010 HMRC revised their policy to allow “pay-per-click” advertising services to be zero rated to charities. Since this was published the technology for online advertising has moved on somewhat and there is no guidance available for mediums like social media.
Where no specific guidance exists we must revert to the law:
The law says that advertising cannot be zero rated if ‘members of the public (whether individuals or other persons)…are selected’. The law goes onto say that this includes being selected by address (including e-mail address or address for electronic communications purposes) or at random. The emphasis is on selection.
It is quite evident that the meaning and scope of “selection” is confusing for many charities and suppliers alike. Certainly, the lack of relevant published guidance does not help the supply chain but HMRC’s stance is that the law was already in place and it is up to suppliers to self-assess the tax due. From this perspective the deck is always stacked in HMRC’s favour. Mitigation may be available to any supplier who has sought a written clearance from HMRC and acted on advice which later proved to be clear but wrong.
Whilst government departments are consumed by Brexit, moves by industry bodies to try and obtain better guidance from HMRC may not progress further for some time. A future tribunal case may arise but this is an expensive course of action for the supplier involved and any judgement from the First Tier Tax tribunal does not set any precedents for the wider industry.
At this time suppliers should take appropriate action to mitigate risk.
The Charity Commission (the Commission) referred to the VAT reliefs for charity advertising in their recently published ‘Charity Tax Commission Report’. The report made two recommendations about VAT advertising relief for charities as follows:
1. The government should review the VAT treatment of online advertising to reflect the reality of modern-day fundraising.
2. E-publications should be liable to the same rate of VAT as their printed equivalents.
The Commission appeared to put these proposals on the back burner by not categorising them as ‘short-term reforms’. By not categorising the advertising recommendations as ‘short-term’ the Commission presumably expects HMRC to take longer to consider these. There is nothing in the report to suggest that any changes are imminent.
The other VAT themes running through the Commission’s report are about the financial burden which VAT is to charities and the difficulties they face in coping with this tax.
It is estimated that in 2016-17 the VAT reliefs were only worth about £400m to charities but according to the Charity Tax Group, VAT suffered each year is about £1.5 billion per annum. Also it was noted that smaller charities are often unable to afford tax specialists to help reduce their VAT burden.
We already know that it is very difficult to obtain a ruling from HMRC. The report notes that in part this is because ‘while there is a dedicated charities team within HMRC, its capacity seems to have been reduced in recent years’ As a consequence charities are now getting less help from HMRC.
The Charity Commission report is available at https://www.ncvo.org.uk/policy-and-research/funding/tax-and-reliefs/charity-tax-commission
It is has been our motive and passion since starting Zero VAT to help suppliers and charities to mitigate VAT where possible. There are still many ways in which we can do this.
Please contact us if you wish to discuss this matter in more detail.
